The New Jersey Supreme Court ruled Tuesday a 2014 pension cut was lawful in the fight between Republican Gov. Chris Christie and state unions.
At the center of the conflict was a 2011 provision known as Chapter 78 which legally compelled the state to pay retirement pensions in full. Despite this, in 2014 Gov. Christie signed Executive Order 156 which significantly cut pension benefits to address serious budget problems. While unions argued Chapter 78 puts the state under a contractual agreement to pay the pensions, the state claimed it doesn’t because the provision violates earlier established laws.
Unions associated with the case include the Communications Workers of America, AFL-CIO and the American Federation of Teachers along with the American Federation of State, County, and Municipal Employees.
“Plaintiffs argued that, in enacting Chapter 78, the State undertook a contractual obligation to make the ARC payment to the pension system and that the State’s failure to make the full FY15 ARC payment constituted an impairment of that contract,” Justice Jaynee LaVecchia detailed in the court decision. “The State asserted that Chapter 78 could not create a valid contract right because it violated the Appropriations and Debt Limitation Clauses and the line-item veto provision of the New Jersey Constitution.”
In its decision, the state Supreme Court overturned an earlier ruling by Superior Court Judge Mary Jacobson that stated Christie acted illegally when he withheld billions in pension contributions. The new decision finds the state does actually have the power to withhold pension payments.
“Chapter 78 does not create a legally enforceable contract that is entitled to constitutional protection,” the decision noted. “The Debt Limitation Clause of the State Constitution interdicts the creation, in this manner, of a legally binding enforceable contract compelling multi-year financial payments in the sizable amounts called for by the statute.”
The final ruling found the justices split 5-2. Though the decision ruled on the side of the state, it also stressed the budget must be put back in order so that retirees can eventually get their benefits.
“That the State must get its financial house in order is plain,” the decision added. “The need is compelling in respect of the State’s ability to honor its compensation commitment to retired employees.”
The cost of retirement benefits and pensions for state employees has been a growing problems in many states, including New Jersey. According to a 2014 report from the New Jersey Pension and Health Benefit Study Commission, pensions could become a problem for future generations without reforms.
“This future debt, while not due now, represents a $53 billion liability,” the report detailed. “Heightening concerns that these costs will be a burden on the next generation, the ratio of retirees – who contribute less to their health care costs – to active employees has been increasing. The State’s total cost of providing coverage to retirees now exceeds the cost of providing coverage to active employees, and is increasing at an even faster rate.”
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